Recent news from the finance ministry suggests that the 8th Pay Commission will be starting its work in January 2025. While there are no formal updates yet to the commission’s formal structure, consultations are already being held with the involved stakeholders. Feedback has already been received from the various ministries as well as the state governments in regard to the submissions that will control the salary and pension revisions.
Expected Salary Hike and Fitment Factor
Kotak Institutional Equities has projected that the minimum basic salary will increase from ₹18,000 to ₹30,000. The fitment factor has also been projected to be around 1.8, which is lower than the 2.57 which was utilised during the 7th Pay Commission, so the effective salary increase will be around 13%. This change will help out almost 50 lakh central government employees and 65 lakh pensioners.
Implementation Timeline and Fiscal Impact
Historically, the 8th Pay Commission is expected to be in operation around late 2026 to early 2027. The government tends to take around 18 to 24 months to transition from announcement to implementation. The fiscal impact is estimated to be 0.8% of the GDP, which would result in an outlay of ₹2.4 to 3.2 lakh crore. These changes could boost consumer demand as well as increase savings.
Pension and Allowance Revisions
The commission will review the salaries, pensions, gratuity, and terminal benefits. The current Dearness Allowance of 55% will reset to 0% when the new pay matrix is implemented. This reset will be counterbalanced by an increase in the revised pay, guaranteeing financial support to retirees.
Administrative Delays and Employee Concerns
The Commission’s chairperson and members are yet to be appointed, which is an announcement without action. The delay in notifying the Terms of Reference has caused the employee unions to place pressure for faster action. The Department of Personnel & Training has seemed to be streamlining processes to fill central roles and has relaxed timelines which means there is still some groundwork that is yet to be completed.
Market Expectations and Economic Outlook
There is a projected ramp in spending in automobiles, consumer goods and housing which in return is poised to boost the economy. There will be greater investment flows towards equity and fixed deposits. There is a concrete expectation building in the 8th Pay Commission serving as a game changer for the public sector workforce.
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